The Google-AFARA Plastic Circularity report on which I wrote a few months back has now been released in full. One of the key findings from the report is that investment is crucial to creating a circular economy for plastics and that there are significant opportunities for investors, particularly at the nexus of climate and plastics.
With a recycling value chain that is under pressure like never before, the need for investor engagement has never been greater. But thanks in part to this study, one thing is now clearer than ever – the current challenges facing the value chain present investors with a really unique opportunity to use their capital to steer the recycling industry back towards growth. The time to act and invest in solutions is now.
I recently sat down with Mike Werner, Google’s Lead for Circular Economy, and Dan Zilnik, AFARA’s President, to discuss their collaboration, insights, and recommendations to accelerate a circular economy for plastics and maximize investment opportunity. Below is an excerpt from our conversation.
RK: Mike, Google is known for being a data-driven organization. Why did you partner with AFARA to collect data on the plastic circularity gap, and what was the biggest surprise for you?
MW: At Google, we believe that realizing a sustainable world means that we all must accelerate the transition to a safe, equitable, and circular economy where people, the planet, and businesses thrive. However, reaching a circular economy for any resource, especially plastics, is a large and complex global challenge. Before conducting this study, what I saw in the public dialogue were data and reports on the 50 or 100 different things we all ought to do to end plastic waste, but there lacked a clear list of prioritized interventions that would have the greatest impact on creating a circular economy of plastics. Dan and his team at AFARA helped us dig into the economics and develop an intervention model that established a clear set of low-risk and no-risk interventions that would be economic under multiple future scenarios toward creating a circular economy for plastics. AFARA has been an ideal partner because of their deep expertise in the economics of oil, gas, and plastics value chains and the myriad of sustainability issues surrounding those resources.
Two big things stand out to me about the data. First, the data suggest that the circularity gap is likely going to grow significantly over the next two decades. Under a business as usual scenario, it is projected that 7.7 billion metric tons of plastics will be mismanaged–landfilled, incinerated or leaked into the environment–between now and 2040. That volume of plastic is equivalent to roughly 16x the weight of the entire human population on earth today! Second, while there needs to be a portfolio approach that includes plastic reduction efforts, the biggest intervention we need to capitalize on is building better recycling infrastructure. As the world transitions from linear to circular, supply chains need to be rewired and the requisite infrastructure needs to be put in place to ensure these resources are kept in the economy and out of the environment.
RK: This work takes on a big question that not many folks are paying attention to: “How can we create irreversible momentum towards a circular economy for plastics and simultaneously end our reliance on fossil fuel feedstocks?” Dan, how far did you get in answering this question and what solutions did the analysis reveal?Forbes MoneyREAD MOREGetting Real AboutInterest Rate
DZ: We got most of the way there; the data show that we can close the plastic circularity gap economically by 54-62%. Put another way, more than half of the world’s plastic waste can be part of profitable value chains if we invest in the right things. We can create significant impacts to Polyethylene (plastics 2 and 4), Polypropylene (plastic 5) and PET (plastic 1). While there needs to be a portfolio approach that includes plastics reduction efforts, the biggest intervention is to build better recycling infrastructure. This infrastructure will optimize the existing mechanical recycling technologies that are commercial today and unlock the potential of chemical recycling, which we’ll need in tandem with mechanical recycling to close the plastic gap. But we need to turn this data into action quickly. By 2040, roughly $426-544 billion USD in net present value (NPV) must be redirected from linear supply chains to circular supply chains, and this capital needs to be patient since we are talking about infrastructure and “hard-tech” investment which are decade-based, not annual capital turnover cycles.
RK: These findings challenge some of the conventional wisdom that recycling doesn’t work and isn’t economical. How robust are the data and analyses behind these conclusions?
DZ: We grounded our analysis in the economics of plastics production and recycling, brought together 20 years of supply/demand forecasts for plastics, and developed an intervention model that quantified the impacts of various potential solutions (e.g., technology, investment, procurement, and policy). Finally, we prioritized potential solutions into strategic interventions that are either low-risk or no-risk under multiple future scenarios. For sustainability solutions to scale globally it has to attract capital and has to be economic. This is among the most robust economic models for plastics that I know of.
RK: I guess that explains why it took you guys 9 months to get these 117 pages published! The story coming out is a mix of hopeful (we can do a lot of things to close the gap), and bleak (if we do nothing we are going to have a lot of mismanaged plastic). What should we start doing today to make sure we maximize the opportunity?
MW: The entire ecosystem — from investors and brands to policy makers — needs to unlock and mobilize the requisite capital required to massively improve recycling infrastructure and new supply chains for recycled plastics around the world. In many ways, we are in a similar moment today as we were 20+ years ago with renewable energy. In other words, it was recognized that massive investment was needed in wind, solar, hydro and geothermal projects to increase the supply of green, low-carbon energy. Acceleration in new technologies, adoption of new policies, and leadership from the private sector was also critical. Similarly, it’s time for all of us to act on the recognition that we cannot create a circular economy of plastics without massive investment in recycling, recovery, and reprocessing infrastructure. Some are touting that we cannot recycle our way out of the plastic waste problem and that sounds seductive; however, we cannot eliminate, reduce, or reuse our way out of this problem either. We actually need to do all of it.
The good news is that the tide is turning and both businesses and investors are starting to get a handle on how to better support the recycling value chain. They also recognize that the investment opportunities have real potential to simultaneously address plastic pollution, reduce business risk, improve the long-term economics of the recycled plastics value chains while also tackling climate change. And that’s huge!